Is the end nigh for the Euro? [vol. 3]
Discussion
Digga said:
We are back to that same scenario once more. The fundamental question of who underwrites what/who. The lack of fiscal union, etc. etc.
All very familiar ground. Still, it seems, unresolved.
As noted, I am bias, but I think the question is far more interesting now as soaring inflation rates likely preclude just buying bonds and bailing out participants which was the band aid last time. We can't just have the same again this time.All very familiar ground. Still, it seems, unresolved.
We probably wouldn't be having this conversation though if debt levels had been reduced, as might have been anticipated after the last EZ crisis.
Edited by speedy_thrills on Wednesday 15th June 10:42
speedy_thrills said:
As noted, I am bias, but I think the question is far more interesting now as soaring inflation rates likely preclude just buying bonds and bailing out participants which was the band aid last time. We can't just have the same again this time.
We probably wouldn't be having this conversation though if debt levels had been reduced, as might have been anticipated after the last EZ crisis.
Well you can't punt 2.2trillion Euros into the markets and not expect inflation at some point. Propping up a moribund set of economy data by flinging money into a vast pit may have looked a good idea once. Clearly it won't work now. We probably wouldn't be having this conversation though if debt levels had been reduced, as might have been anticipated after the last EZ crisis.
Edited by speedy_thrills on Wednesday 15th June 10:42
Only actual efficiency gains or growth can real put the European Economy to rights again
jsf said:
They are pricing in risk that the currency will fail.
The Euro is a very peculiar Frankenstein currency, at its heart you still have national banks ultimately responsible for the nations currency.
When Draghi took over and made his famous statement that the ECB will do whatever it takes, that calmed the markets which had realised that the Euro wasn't a proper currency.
When the bond markets start to diverge again, the markets are stating they dont believe the ECB is the central bank of last resort or that the Euro is a real currency when push comes to shove.
Surely the Euro rising whilst Italy bonds fall in value implies the markets think Italy will leave the Euro and improve the quality of what remains?The Euro is a very peculiar Frankenstein currency, at its heart you still have national banks ultimately responsible for the nations currency.
When Draghi took over and made his famous statement that the ECB will do whatever it takes, that calmed the markets which had realised that the Euro wasn't a proper currency.
When the bond markets start to diverge again, the markets are stating they dont believe the ECB is the central bank of last resort or that the Euro is a real currency when push comes to shove.
Or is it simply that they expect greater increases in the ECB base rate and Italy's bonds are floating on the same tide?
loafer123 said:
Earthdweller said:
.25% increase in base rate in July with more to come and talk of upto 2% rise by the end of the year
Inflation in Ireland almost 8% .. legarde says it will be back at 2% next year across the EU .. Economist just said on the news here its not stopping and will soon be over 10% and may go higher still
One of them is wrong
Headline figures show exactly where the pain is: electricity is up 41%
gas 57%,
home heating oil an incredible 102.5% in a country where 700k homes rely on it
Private rents have risen 11.2%
Food is up 6% overall and meat 10% and dairy products 11%
It’s a world of pain
If we can strengthen GBP then our energy costs will drop as they are denominated in USD, and the energy element of inflation will unwind as the 12 months roll by.Inflation in Ireland almost 8% .. legarde says it will be back at 2% next year across the EU .. Economist just said on the news here its not stopping and will soon be over 10% and may go higher still
One of them is wrong
Headline figures show exactly where the pain is: electricity is up 41%
gas 57%,
home heating oil an incredible 102.5% in a country where 700k homes rely on it
Private rents have risen 11.2%
Food is up 6% overall and meat 10% and dairy products 11%
It’s a world of pain
London424 said:
So I'm not going to claim to have any expertise in this area, but is the rationale in that article actually useful or in any sense correct? Does not the inflation landscape make direct comparisons between yields during the GFC and today rather moot?skwdenyer said:
London424 said:
So I'm not going to claim to have any expertise in this area, but is the rationale in that article actually useful or in any sense correct? Does not the inflation landscape make direct comparisons between yields during the GFC and today rather moot?Ridgemont said:
skwdenyer said:
London424 said:
So I'm not going to claim to have any expertise in this area, but is the rationale in that article actually useful or in any sense correct? Does not the inflation landscape make direct comparisons between yields during the GFC and today rather moot?A decade back, I'd have said Germany (and Austria) would veto debt mutualisation, forever. Not so sure now. neither am I sure that raising rates and QE is off the table for ECB.
skwdenyer said:
Earthdweller said:
home heating oil an incredible 102.5% in a country where 700k homes rely on it
In what time period? I've seen heating oil prices in the UK 4x what I paid in 2020 - so that would be 100% per year on average.Mutualisation is feasible but someone will still have to agree to pick up the tab again. Even the if the Euro Zone goes into recession again there will be immense pressure from Southern Europe to let them borrow more, I mean if they couldn't balance a budget since the last crisis there is no chance they'll do it any time soon if they have any other option.
Ridgemont said:
skwdenyer said:
London424 said:
So I'm not going to claim to have any expertise in this area, but is the rationale in that article actually useful or in any sense correct? Does not the inflation landscape make direct comparisons between yields during the GFC and today rather moot?So yes, rich paying for poor (countries)
Or Germany paying for everyone else
That’ll go down well for sentiment between participants
Mr Whippy said:
Debt mutualisation. So yes, rich paying for poor (countries) Or Germany paying for everyone else That’ll go down well for sentiment between participants
You can see the cost today, German bonds shot up and those of Southern European countries decline slightly. That’ll go down well for sentiment between participants However ultimately this does not solve the problem of how to force Southern European countries to actually reduce debt levels.
speedy_thrills said:
Mr Whippy said:
Debt mutualisation. So yes, rich paying for poor (countries) Or Germany paying for everyone else That’ll go down well for sentiment between participants
You can see the cost today, German bonds shot up and those of Southern European countries decline slightly. That’ll go down well for sentiment between participants However ultimately this does not solve the problem of how to force Southern European countries to actually reduce debt levels.
French are a different case, but the others have a different set of challenges, plus for Italy, they had the misfortune of being hit earliest and hardest with lockdowns.
speedy_thrills said:
You can see the cost today, German bonds shot up and those of Southern European countries decline slightly.
However ultimately this does not solve the problem of how to force Southern European countries to actually reduce debt levels.
Ooooo goody more free money, more corruption, more villa’s for the elite However ultimately this does not solve the problem of how to force Southern European countries to actually reduce debt levels.
Ah sure now Ted it worked before
speedy_thrills said:
Mr Whippy said:
Debt mutualisation. So yes, rich paying for poor (countries) Or Germany paying for everyone else That’ll go down well for sentiment between participants
You can see the cost today, German bonds shot up and those of Southern European countries decline slightly. That’ll go down well for sentiment between participants However ultimately this does not solve the problem of how to force Southern European countries to actually reduce debt levels.
The wealthy leave.
The Euro is now Germany.
It isn’t a fun scenario.
The £ has slid over the last cpl of days, 1.16 or so now. I had expected the rate to be nudging 1.25 by Xmas, but looking more like 1.2 now as my best guess. The volatility in the fx markets will continue for the rest of this yr. BOE just put 25pts on today, but it’s the typical Threadneedle restrained reaction to the Fed’s more aggressive approach. The reality is the Fed just fired the starting gun on a potentially v nasty race.
Quite what or where the race is to I don’t know and that is when I get nervous.
Everyone needs to be very very aware of something, WE - the European continent - cannot afford for the ECB to collapse or get f
ked. This sort of action ALWAYS leads to someone getting fked. You don’t raise 75pts as a starter for ten and someone not be on the wrong end of catching the cold.
The £ has slid over the last cpl of days, 1.16 or so now. I had expected the rate to be nudging 1.25 by Xmas, but looking more like 1.2 now as my best guess. The volatility in the fx markets will continue for the rest of this yr. BOE just put 25pts on today, but it’s the typical Threadneedle restrained reaction to the Fed’s more aggressive approach. The reality is the Fed just fired the starting gun on a potentially v nasty race.
Quite what or where the race is to I don’t know and that is when I get nervous.
Everyone needs to be very very aware of something, WE - the European continent - cannot afford for the ECB to collapse or get f
ked. This sort of action ALWAYS leads to someone getting fked. You don’t raise 75pts as a starter for ten and someone not be on the wrong end of catching the cold. Mr Whippy said:
It’s a macrocosm of rich and poor in a country, and the wealthy being abused to pay for the poor who won’t change their ways.
The wealthy leave.
The Euro is now Germany.
The rich (Germany) has built it's economy on the basis of having an undervalued currency to help drive exports and generate a huge surplus, this is achieved by exploiting the poor (southern Europe) who have to function with an over valued currency which has killed their competitiveness, whilst remaining within a strict deficit target (austerity). The wealthy leave.
The Euro is now Germany.
There is a reason why Italy has been in intensive care for 2 decades, and it's not because they are lazy or are not open to change, their currency doesn't suit their economy. You cant have the same currency for such a diverse group of economies with different needs, without accepting the rich have to pay for their advantages from this system by transferring money to the poorer regions impacted by that model.
It's unsustainable without large fiscal transfers and full financial integration for the entire Eurozone.
That should have been the outcome of 2008, but the Germans wont accept they are profiting from this system, so wont agree to fiscal union and all that entails.
The only thing that changed in 2010 was Draghi saying he would underwrite the bonds, that's unravelling again. They have literally thrown the kitchen sink at a poorly designed currency which was all about politics and not about the best solution for the economies involved.
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